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Easy does it

I recently returned from the construction equipment dealers convention in Orlando and it was great. The facility was great, the mood upbeat and the program educational. And, it was not snowing! It was a good way to start the year off right.

As you know, construction equipment is probably one of the last market segments that recover from a recession. The lift truck industry has been in the recovery cycle for some time, but all in all I guess we have to use the word “recovery” loosely.

What was somewhat unexpected at the convention came from the banking side of the business. The banks that service the industry were actually looking for business and again are willing to finance the dealers as well as the retail customers. I had to pinch myself to make sure I wasn’t dreaming. On the other hand, I wouldn’t get too excited, as they will only loan to customers that are credit worthy based on current credit standards. Well as least you can start to investigate alternatives should the need arise.

It also appears the investment bankers are back on the scene because the private equity money is somewhat more available. If you want to sell, they can help guide the process.

If you want to buy, the money is probably out there.

You can get the help, but it doesn’t come cheap. If there is a deal out there, investment bankers can find it.

I was part of a group that did a short session on the Bonus Depreciation and Sec 179 rules. I was surprised by how many dealers didn’t know much about the subject or how it worked. In fact, many were not using this information as part of their sales process. Some thought it was too confusing for the sales department to present properly. Some thought it was too confusing for the customers. I agree it is more confusing than you think, but at least it provides a benefit to customers if they can use it. In short, it pays to mention the benefit to customers to have them check it out with their CFO.

When all is said and done, the message of the day and maybe the year is, “easy does it” when it comes to driving the business through the recovery. Please keep in mind that cash is king, which is not the same as profits are king. This was fully explained by Dr. Al Bates in a session at the convention. His message is, “You can reach a return on assets percentage in the upper quartile if you properly control your gross margins and payroll.” His examples covered a five year period with results that grew margin dollars faster than payroll. If you participate in MHEDA’s annual DiSC report, the page that displays expenses measured against gross profit dollars tells you how you are doing in this regard. As I am sure you know, Dr. Al leads the Profit Planning Group that produces the annual DiSC report and thus is someone who really understands the finances of your industry.

Getting back to my point about taking it easy, Dr. Al suggests the five year approach to improved profitability, as opposed to significant increase on one year because of the strain on cash flow. If your sales plan calls for a 20 percent increase in business in 2011, you better have balance sheet projections, as well as cash flow projections, to see if you have the equity base to support the higher sales level. You may be surprised at the results. As I have said at least a hundred times, “Every dollar of sales needs some equity to support it.”

So let’s get with it. Prepare the plan, but make it a complete plan and not just a sales plan. Now that you are digging yourself out of a hole, keep moving upward as opposed to sliding backwards. Just remember, “Easy does it.”


Garry Bartecki is a CPA MBA with BG Financial Services LLC. You may contact him by e-mailing editorial@mhwmag.com.
 

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